- DTC brands are advertising on a variety of platforms in search of new customers.
- Each platform has different metrics that make it difficult to understand cost.
- Brands are excited about TikTok, but data shows it's one of the most expensive channels.
Brands are finding it a lot more complicated to get new customers on social platforms than it was in previous years.
It used to be that new direct-to-consumer brands could reliably find customers interested in trying out their products by advertising on Facebook and Instagram. Early DTC successes like Warby Parker and Glossier rose to success in the 2010s by building community on these platforms while eliminating the retail middleman.
But lately, because of changes to how apps can track customer behavior in Apple's iOS, it's gotten more costly for brands to acquire customers in the same way — and more difficult for them to measure the impact advertising has on their overall sales.
Brands have turned away from relying solely on Meta and are using many different platforms to acquire new customers, including relatively new channels like TikTok. That comes with its own set of challenges.
Historically, the primary way that DTC brands have measured the effectiveness of their marketing is by looking at customer acquisition costs, or CAC, meaning the cost spent to convince a new customer to make a purchase. But that's not so easy in the current landscape.
"What brands are facing is this awkward patchwork of platforms that each use their own calculations," Brett Bardsley, VP of advertising at the e-commerce acceleration platform Pattern, told Business Insider. He added that some platforms aren't able to share CAC with brands because they don't have conversion data.
"Brands have a very tricky problem on their hands to be able to bring this patchwork of different KPIs, different analyses together to create a holistic marketing approach," he said.
As brands face a mishmash of metrics provided by the various platforms they use to find customers, some are turning to other measures, like cost per order (CPO), or return on ad spend (ROAS).
Ad measurement firm Measured tracked data for 150 brands for the second quarter of this year. Measured's data looks at CPO, which analyzes a brand's ad spend aimed at finding new customers, to determine how much it costs to acquire a customer. According to Clay Cohen, VP of marketing at Measured, the data platforms provide directly to brands isn't accurate because platforms often take too much credit for driving sales when customers realistically interact with multiple ads before buying a product.
Measured's data shows that Snap is the cheapest channel for brands to acquire customers. It costs $64.31 to acquire a customer on Snap through advertising. Reddit, meanwhile, is the most expensive channel, costing brands $158.96 to acquire a customer. On TikTok, it costs brands $139.58 to acquire a customer, while Meta nets out to $83.16.
However, the costs of acquiring a customer don't necessarily match with where advertisers spend money.
During the second quarter, more than 79% of brands ran Meta ads to find customers, compared to 12% of brands that ran Snap ads with the same goal. Forty-seven percent of advertisers bought TikTok ads, and 5% of brands invested in Reddit ads to find customers.
While TikTok's cost per order is higher than most of its peers, Bardsley said Pattern's partner brands are seeing good ROAS on the video-driven social platform so far because it's easy for consumers to complete purchases from within the app. TikTok launched its new shopping platform, Shop, in the US in September, and early surveys indicate it has momentum with young consumers.
"TikTok is definitely the shiny toy that everyone is looking at right now and trying to work out," he said.
But, succeeding as a brand on TikTok does require consistent output, and it can be difficult to predict what content will go viral. TikTok sales are also heavily reliant on influencers, which can be expensive and time-consuming for brands to manage.
"I've seen brands try to launch on there, and they just don't have the product for it," said Eva Hart, content marketing and demand generation manager at Jungle Scout. "It's just a whole other beast to tackle."
While Meta, Pinterest, and TikTok get more of Measured's clients to spend, the data suggests that Snap could be an overlooked channel for brands, as it has low acquisition costs. The World Advertising Research Center expects Snap's ad revenue to grow by 13.7% to reach $5.2 billion in 2024.
